Gross Profit Margin of the Nonferrous Metal Industry Met Drastically Different Fate

In 2013, the operation condition of China’s nonferrous metal industry remained sluggish,the major problems affecting the industry were still tepid downstream demand and surplus in production capacity. According to data obtained by the reporter, in 2013 the nonferrous metal industry’s profit ratio of sales income is only 3.56%, down by 0.36% on Y-o-Y basis.

However, judging from the data of annual reports already published by nonferrous metal listed companies up till now, the reporter discovered that there are serious contrary diverging trends in gross profit margin on all sales among all companies.

According to Wind data, judging from 80 listed companies classified as nonferrous metal industry by the CITIC Securities, 48 have published annual report for 2013, in which 18 companies recorded gross profit margin on all sales below 10% last year, these companies are mostly aluminum processing and manufacturing enterprises; on the other hand,last year 5 nonferrous metal listed companies recorded gross profit margin of above 50%,Yintai Resources Co., Ltd ranked top with a gross profit margin on all sales of 87.46%.

According to Yintai Resources’ annual report for 2013, last year it fulfilled business income of 590 million yuan, up by 131.76% on Y-o-Y basis, fulfilled net profit of 466 million yuan,up by 27.81 folds on Y-o-Y basis, fulfilled earning per share of 0.45 yuan, the reason that it was able to deliver such a satisfactory score sheet is mainly due to the fact the company completed major assets restructuring in 2013,its main business changed from hotel catering and accommodation to nonferrous metal mining and dressing.

At the end of 2012, Science City, the predecessor of Yintai Resources, acquired 69.47% equity of Yulong Mining with 2.293 billion yuan, after which the company’s main business was changed to nonferrous metal ore mining and dressing business. In March 2013,“Science City” formally changed its name to“Yintai Resources”. In October 2013, the company again published notice saying the company planned to acquire 7.2% equity of Yulong Mining held by Wang Ning with the balance of raised funds and self-owned funds,the transaction price was finalized at 285 million yuan. After the completion of this time’s equity transfer, the company will hold 76.7% equity of Yulong Mining.

What’s more important, Yulong Mining, Yintai Resources’ holding subsidiary which attracted much public attention, has over-fulfilled the profit guaranteed at the time of restructuring, a good start laid down solid foundation for the company to acquire further development in the mining sector.

Because of high silver grade, and superior mining condition, Yulong Mining demonstrated extremely strong profit-earning ability; in 2013 Yulong Mining fulfilled whole year business income of about 600 million yuan. Yintai Resources estimates that in 2014,Yulong Mining will fulfill a net profit of no less than 400 million yuan.

According to published data, the West Ujimqin Banner Hua'aobaote Silver & Lead Mine owned by Yulong Mining simultaneously reached the criteria for large-sized silver, lead,and zinc mine. The mine’s overall silver average grade is 192g/t, including one inproduction mine, Yulong Mining at present owns two mining rights and four exploration rights, including a mine transferred from prospecting to mining. The silver mine available for mining boasts excellent conditions, the mining zone with exploration right is situated on the Daxing’anling Nonferrous Metal Metallogenic Belt and the North China Northern Margin Gold Metallogenic Belt, the prospecting scope is up to 41.11 sq km.

It is exactly the above-mentioned reasons that drive the gross profit margin of the company’s nonferrous metal ore mining and dressing business up to 87.46%. Viewed by products,the gross profit margin of the company’s lead concentrate (containing silver) is up to 93.86%,the gross profit margin of zinc concentrate is 49.46%, in which business income of lead concentrate (containing silver) is 508 million yuan, that of zinc concentrate is 85.5218 million yuan.

“Compared to other nonferrous metal products, Yintai Resources’s silver ore is relatively in short supply, judging from data,last year the prices of major nonferrous metals in both domestic and overseas markets continued to drop, which brought great pressure to industry operation. Last year, prices of copper, aluminum, and zinc were respectively 53400 yuan/tonne, 14600 yuan /tonne and 14900 yuan/tonne, down by 6.9%, 7.1% and 1.1% on Y-o-Y basis, which makes it easy to explain why Yintai Resources’ gross profit margin will be higher than that of other nonferrous metal listed companies.” said one analyst in the industry.

Because of low metal prices last year, Yintai Resources’ stock-sales ratio topped 40%.According to relevant industry insiders, with the rally in silver price and rising demand, this year the company’s sales is expected to recover.

According to relevant data, up till the fourth quarter last year, finished products funds of the nonferrous metal industry is 174.8 billion yuan,up by 2.2% on Y-o-Y basis, the growth rate dropped by 2.2% than that of the third quarter.Since the fourth quarter of 2012, the Y-o-Y growth rate of finished products funds continued to drop, and recorded five consecutive quarters of stayinig lower than the growth rate of income from main business,currently the inventory growth rate is at relatively low level. Although the supply demand relation has improved to certain degree, overall speaking the nonferrous metal industry still remained in a destocking trend,enterprises are cautious toward industry forecast.

In the fourth quarter last year, the total profit of the nonferrous metal industry is 64.41 billion yuan, changing from down by 10.3% on Y-o-Y basis in the third quarter to up by 4.4% on Y-o-Y basis. The profit ratio of sales of the nonferrous metal industry is 4.5%, down by 0.3% compared with the same period last year,2% lower than the average level of the whole industry, and the gap narrowed by 0.5% than in the third quarter.

In the fourth quarter, the loss percentage of the nonferrous metal industry is 18.8%, up by 0.4 percentage points compared with the same period last year. The loss amount of losssustaining enterprises is 6.3 billion yuan, up by 13.1% on Y-o-Y basis.